Kainos warns of ‘tougher trading environment’

A challenging trading backdrop has forced Kainos Group to cut its revenue forecasts for the year, pushing the IT consultancy’s shares to their lowest level in more than four months.

The FTSE 250 company, which designs information technology systems for private and public sector clients, said it would report only a “small increase” in revenue for the year to the end of March 2025, therefore a figure below the £415.5 million that the market had estimated. This was because of a “tougher trading environment in services in the financial year-to-date”.

Kainos generated sales of £382.4 million and an adjusted pre-tax profit of £77.2 million in its last financial year.

Despite the warning, the company said it was confident that it would achieve adjusted pre-tax profits in line with the £78.5 million to £79.7 million range the City had forecast previously.

Kainos makes more than half its sales from its digital services division, where it develops custom platforms. Although demand from public sector clients was sustained during the first five months of the year, it conceded that some projects had been delayed by the general election, while demand among commercial clients remained weak as companies paused spending plans amid economic uncertainty.

The rest of its business comes from a partnership with Workday, an American human resources software platform, which offers ways for clients to manage services including recruitment and payrolls. The Workday services division, which advises clients on installing and using the system, won fewer contracts compared with previous periods and had been hit by “more aggressive pricing among partners”. However, bosses are confident that the division will return to growth in the second half of this year.

The Workday products division, which develops and sells its own proprietary software, continued to deliver strong growth over the period, having made “excellent progress” after agreeing an enhanced distribution agreement with Workday.

“Given the current macroeconomic environment, the board continues to believe that we are maintaining the appropriate balance between profitability, investment for future growth and international expansion,” the Belfast-based business said. It looked to the rest of the year “with confidence, supported by a healthy pipeline, a strong balance sheet and significant contracted backlog”.

Analysts at Investec, the investment bank, noted that over the past 18 months there had been “downward revenue ‘tweaks’, with profits maintained thanks to prudent forecasting and close cost-base management”. However, Investec expected “this to be the last of the headroom” for Kainos, emphasising the importance of revenue for the second half of the year.

Northern Ireland’s most successful technology business was founded in 1986 as a corporate venture between Queen’s University Belfast and ICL (Fijitsu). Its customers include central government departments and agencies and its work includes digitising NHS patient records. It employs more than 2,900 people in 22 countries.

Last year Brendan Mooney, 57, its long-serving chief executive who had spent 22 years in charge, stepped down, with Russell Sloan, 48, who had been the business’s divisional director of digital services, replacing him.

The company was floated on the London Stock Exchange in 2015 at 139p per share and was promoted to the mid-cap index in 2019. The revenue warning sent shares in Kainos down by 158p, or 14.3 per cent, to close at 948p.